Question 1

What is the break-even point formula?

Accepted Answer

Break-Even Units = Fixed Costs ÷ (Selling Price − Variable Cost per Unit). The denominator is called the Contribution Margin per Unit. Example: Fixed costs = $10,000, selling price = $50, variable cost = $30. Contribution margin = $50 − $30 = $20. Break-even = $10,000 ÷ $20 = 500 units. Break-Even Revenue = Fixed Costs ÷ Gross Margin % = $10,000 ÷ 40% = $25,000.

Question 2

What are fixed costs vs variable costs?

Accepted Answer

Fixed costs don't change with production volume: rent, salaries, insurance, equipment depreciation, software subscriptions. Variable costs change directly with output: raw materials, packaging, shipping per unit, sales commissions, credit card processing fees. Semi-variable costs have both components (e.g., a phone plan with a base fee + per-minute charges). For break-even analysis, separate costs carefully — misclassifying a variable cost as fixed overstates your break-even point.

Question 3

What is contribution margin and why does it matter?

Accepted Answer

Contribution Margin (CM) = Selling Price − Variable Cost per Unit. CM Ratio = CM ÷ Selling Price. Every unit sold contributes the CM amount toward covering fixed costs and then generating profit. Example: $50 price, $30 variable cost → $20 CM → 40% CM ratio. Once fixed costs are covered, each additional unit generates $20 profit. A higher CM ratio means you reach profitability faster, which is why high-margin software businesses scale better than low-margin retailers.

Question 4

What is the margin of safety?

Accepted Answer

Margin of Safety = Actual/Projected Sales − Break-Even Sales. It shows how much sales can drop before you start losing money. Expressed as %: (Actual − Break-Even) ÷ Actual × 100. Example: projected 800 units sold, break-even at 500 units → Margin of Safety = 300 units or 37.5%. A margin of safety above 25% is considered healthy; below 10% means the business is vulnerable to any sales decline.

Question 5

How do I lower my break-even point?

Accepted Answer

Three strategies: (1) Reduce fixed costs — negotiate rent, automate to reduce headcount, cut non-essential subscriptions. (2) Reduce variable costs — negotiate supplier pricing, improve production efficiency, buy in bulk. (3) Increase selling price — even a 5–10% price increase dramatically lowers break-even if demand holds. Doubling your contribution margin cuts your break-even units in half. Most businesses find it easier to raise prices or cut variable costs than to cut fixed overhead.

Business Type	Fixed Costs	Variable Cost	Selling Price	Break-Even	CM Ratio
Coffee Shop	$8,000/mo	$1.20	$4.50	2,425 cups/mo	73%
SaaS Product	$15,000/mo	$5.00	$49.00	341 subs/mo	90%
E-commerce	$3,000/mo	$18.00	$45.00	112 orders/mo	60%
Freelance Agency	$6,000/mo	$20.00	$120.00	60 hrs/mo	83%
Restaurant	$25,000/mo	$8.00	$22.00	1,786 covers/mo	64%

Strategy	How It Helps	BEP Impact
Raise selling price 10%	Increases contribution margin per unit	−18 to −25%
Cut variable cost 10%	Increases contribution margin per unit	−12 to −15%
Cut fixed costs 10%	Directly reduces required CM to cover	−10%
Switch fixed → variable	Lowers fixed base (e.g., commission vs salary)	Variable
Increase product mix CM	Sell more high-margin items	Depends on mix

Break-Even Calculator

Break-Even Examples by Industry

Break-Even Formulas Reference

How to Lower Your Break-Even Point

Frequently Asked Questions

Related Calculators

ROI Calculator

Profit Margin Calculator

Compound Interest Calculator

Loan Calculator

Percentage Calculator